Poorman v. Commissioner of Internal Revenue
| Decision Date | 04 December 1942 |
| Docket Number | No. 10090.,10090. |
| Citation | 131 F.2d 946 |
| Parties | POORMAN v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Samuel Poorman, Jr., of Los Angeles, Cal., for petitioner.
Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Gerald L. Wallace, Mamie S. Price, and Warren F. Wattles, Sp. Assts. to the Atty. Gen., for respondent.
Before DENMAN, MATHEWS, and STEPHENS, Circuit Judges.
This is a petition for the review of an order of the Board of Tax Appeals, and the sole question is whether a payment of money to the petitioner was a gift under the income tax laws as they were applicable for the taxable year of 1937. Both the Commissioner of Internal Revenue and the Board found the payment to be in the nature of compensation and not a gift.
Petitioner, an attorney at law, was employed on a monthly salary by the Los Angeles Gas and Electric Corporation, hereinafter called the Gas Company, for a period of seventeen years prior to January, 1937. A great part of petitioner's services were in connection with litigation concerning the extent of the right of his employer to use the streets of the City of Los Angeles for pipes, poles, conduits, etc., used in the distribution of gas and electricity to the inhabitants of the City of Los Angeles. In the course of the litigation, negotiations were started and proceeded to a successful termination, through which the Gas Company's electrical business and properties were transferred to the City, as of January 31, 1937. Petitioner took no part in these negotiations, although it is highly probable that the franchise litigation greatly influenced the final agreement of sale.
After the transfer took place, a number of the Gas Company's employees, including petitioner, were transferred to the employment of the City. When petitioner left the employment of the Gas Company, his monthly stipulated salary had been paid in full, the last payment check having attached, a voucher with the following statement:
A "Uniform Pension and Benefit Plan" for the employees of the Gas Company had been in operation for a considerable period of time and was supported by a percentage of salary paid by employees to be used solely to provide a portion of the total retirement figure. The Gas Company contributed to and administered the plan.
Recognizing that the sale and consequent changes of employer affected petitioner and others, the Gas Company, in writing, notified them that their membership in the Uniform Pension and Benefit Plan was terminated and checks would be forthcoming for the amounts of their several contributions to it.
Also, a letter, dated January 25, 1937, signed by the president and manager of the Gas Company, was sent to the same persons, the applicable part of which we quote as follows:
On or about the day these notices were received, petitioner had a conversation with the president of the Gas Company, in which the president said in effect that petitioner's work with the company was finished; that he was to be transferred to the City as an employee; that Pacific Lighting Corporation, which held all the Los Angeles Gas and Electric Corporation common stock, had arranged for the giving of a "bonus" to those to be so transferred. Quoting petitioner directly from the Record, he said: "He the president made no mention of the payment being additional compensation, but he did say that it was in recognition of my fine work in the franchise cases."
Sometime thereafter, petitioner received a check which was in all respects in accordance with an attached voucher, which read as follows:
This payment to petitioner and other payments of like import were entered on Gas Company's ledger under "Sale of Electric Properties, Suspense Account", and the Gas Company's president testified that the payment to petitioner was not entered as ordinary operating charges for the reason that it was "so definitely not ordinary operating expenses; it would never have been made except for the sale of the electric properties or some other abnormal or extraordinary transaction." The sum of all of the payments in this respect was deducted from the sales price received for the sale of the properties to the City in the Gas Company's tax returns.
The applicable part of the statutes which govern are, Revenue Act of 1936, c. 690, 40 Stat. 1648:
* * * * * *
26 U.S.C.A. Int.Rev.Acts, page 825.
Petitioner bases his contention that the money paid him was a...
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